Grainnet

USDA August Crop Production Forecast Comes in Higher Than Analysts Expected

Going into the Aug. 12 U.S. Department of Agriculture (USDA) Crop Production Report one big question was on everyone's mind -- how will the corn and soybean crops recover from June's extensive Midwest flooding.

Pretty well, according to the USDA.

The department pegged the 2008 corn crop at 12.28 billion bushels, still the second highest on record, compared with an average of only 11.986 billion predicted by trade analysts over the last couple of weeks.

Soybean production was set at 2.97 billion bushels, pretty close to the trade estimates around 3.0 billion.

All wheat production was set at 2.462 billion bushels, again very close to the trade estimate of 2.465 billion.

Because of the unusual weather this spring and summer, USDA took the rare step of putting a special notation on the report about the Midwestern floods:

"Extensive rains and flooding during June in several Midwestern states caused producers to change harvesting intentions for crops already planted and modify planting decisions for acres not yet planted.

"In an effort to more accurately determine how many acres producers planted and still intent to harvest, NASS (National Agricultural Statistics Service) conducted an intensive re-interview study in July in flood-affected areas.

"Acreage estimates in this report reflect this updated information."

Here is a closer look at the numbers from the crop report, as well as USDA's August World Supply and Demand Estimates.

Corn

Corn production is forecast at 12.3 billion bushels, down 6% from 2007 but 17% above 2006.

Based on conditions as of Aug. 1, yields are expected to average 155.0 bushels per acre (bpa), up 3.9 bushels from 2007.

If realized, this yield would be the second highest on record, behind 2004.

Production would be the second highest on record, behind 2007, when producers harvested the most acres of corn for grain since 1933.

Forecasted yileds are higher than 2007 in the northern and eastern Corn Belt, Ohio and Tennessee valleys, and northern half of the Atlantic Coast, where frequent precipitation in 2008 contrasted with extremely dry weather in 2007.

Expected yileds across the southern half of the Great Plains and the Carolinas are below 2007 due to drought-like conditions throughout much of the growing season.

Growers expect to harvest 79.3 million acres for grain, up 350,000 acres from June but 8% lower than 2007.

Feed and residual use is raised 100 million bushels, with the larger crop and lower expected prices.

Ethanol use is raised 150 million bushels, as increaed supplies and lower prices are expected to improve plant operating margins and capacity utilization rates.

Exports are unchanged, as increased competition from wheat feeding limits prospects for U.S. shipments.

Ending stocks for U.S. corn are projected at 1.1 billion bushels, up 301 million bushels from July.

The season-average farm price is forecast at $4.90 to $5.90 per bushel, down 60 cents on both ends of the range.

Soybeans

Soybean production is forecast at 2.97 billion bushels, up 15% from 2007 but down 7% from the record high production of 2006.

If realized, this will be the fourth largest production on record.

Based on Aug. 1 conditions, yields are expected to average 40.5 bpa, down 0.7 bushel from 2007.

Compared with 2007, yields are forecast lower in Illinois, Iowa, Louisiana, Minnesota, Mississippi, Ohio, Taxes, and across the northern and central Great Plains.

In contrast, yield prospects are forecast higher than 2007 or unchanged across the remainder of the country, with the largest increases in Kentucky and Tennessee, up 13 and 12 bushels from 2007, respectively.

Area for harvest in the United States is forecast at 73.3 million acres, up 2% from June and up 17% from 2007.

Soybean stocks are down 5 million from July, at 135 million bushels, as reduced supplies are only partly offset by a lower crush.

Soybean crush is reduced 15 million bushels due to lower domestic use and exports of soybean meal.

The U.S. season-average soybean price for 2008-09 is projected at $11.50 to $13, down 50 cents on both ends of the range.

All Wheat

All wheat production, at 2.46 billion bushels, is virtually unchanged from the July forecast but up 19% from 2007.

Based on Aug. 1 conditions, the U.S. yield is forecast at 43.5 bpa, unchanged from July but 3.0 bushels above 2007.

Winter wheat production is forecast at 1.87 billion bushels.

This is up 1% from July and 24% above 2007.

The U.S. yield is forecast at 46.6 bph, up 0.3 bushel from July and up 4.4 bushels from 2007.

The area expected to be harvested for grain totals 40.3 million acres, unchanged from July but up 12% from 2007.

Hard red winter, at 1.06 billion bushels, is up 1% from July.

Soft red winter, at 609 million bushels, is up slightly from the last forecast.

White winter is down 3% from July and now totals 211 million bushels.

Of this total, 23.6 million bushels are hard white, and 187 million bushels are soft white.

Durum wheat production is forecast at 86.6 million bushels, down 4% from July but up 21% from 2007.

The U.S. yield is forecast at 33.5 bpa, down 1.3 bushels from July and 0.4 bushel below 2007.

Expected area to be harvested for grain totals 2.58 million acres, unchanged from July but up 22% from last year.

Other spring wheat production is forecast at 501 million bushels, down 1% from last month but up 5% from 2007.

Area harvested for grain totals 12.8 million acres, unchanged from last month but up 6% from 2007.

The U.S. yield is forecast at 36.4 bpa, 0.4 bushel below July and 0.6 bushel below 2007.

Of the total production, 466 million bushels are hard red spring wheat, down less than 1% from July.

Feed and residual use are projected 35 million bushels lower, as increased supplies of feed grains and sharply lower projected feed grain prices reduce prospects for domestic wheat feeding.

The all wheat season-average farm price is projected at $6.50 to $8 per bushel, down 25 cents on each end of the range from July.

Analysis

Speaking from a teleconference on the floor of the CME Group's Chicago Board of Trade, analysts noted that while the USDA corn production forecast was higher than private numbers, that increase mostly was offset by higher predicted demand.

A similar situation was shaping up for soybeans, with increased demands for that crop, as well.

"We will have to find some way to come up with additional corn and soybean acres in 2009," commented Richard Feltes with MF Global, Chicago, IL.

He noted that finding those acres will be more difficult, since the USDA once again has rejected the idea of releasing any Conservation Reserve Program (CRP) acreage currently under contract.

Crop prices have dropped considerably from June, and analysts during the teleconference agreed that a largely non-agricultural factor will continue to play a role in that for at least another four to six weeks.

They were referring to long-only, passively-managed hedge funds that have helped drive commodity prices up across the board since early in 2007.

These funds have been bailing out of the commodity markets, most notably in crude oil, which analysts forecast to be around $110 per barrel by Labor Day, if not sooner.

However, agricultural prices, at least, could begin to climb again in October, as the combines roll across the fields.

Dan Basse with AgResource Co., Chicago, commented that USDA's forecast of the Iowa corn crop at 171 bph did not feel right based on what farmers are reporting from their fields.

"Once the combines are in the field, and farmers see what they really have out there, the market could rally," he said.

He added that "the world is not awash in grain," and any production or weather problem anywhere could cause prices to spike upward again.

Weather is a particularly dicey factor, with late-developing crops vulnerable to any early frost this year.

Feltes noted that the average first frost date ranges from around Sept. 25 in North Dakota to mid-October in central Illinois.

Fortunately, he said, no large cold air masses are pooling in the Arctic, and historically, average summer temperatures -- not unusually high or low -- such as this year's tend to lead to average first frost dates.

Basse noted that 7% of the U.S. corn crop still had not pollinated as of Aug. 11, and this could be unusually vulnerable to cold weather.

Turning to the 2009 crop, both analysts noted that high fertilizer prices will play a large roll in planting decisions.

In particular, it could cause a shift away from fertilizer-hungry corn toward soybeans, which can get their nitrogen from the atmosphere.